In his first public speech since being confirmed as Chairman of the U.S. Securities and Exchange Commission (“SEC” or “the Commission”), Jay Clayton addressed the Economic Club of New York on July 12, 2017. In his remarks, available here, Chairman Clayton discussed his vision of the principles that should guide the Commission and opportunities to apply those principles in practice.
Chairman Clayton laid out eight principles to guide his tenure as SEC Chairman, including:
(1) Analysis of Long-Term and Cumulative Effects of Small Regulatory Changes. Incremental regulatory changes can have long lasting, dramatic impacts on markets and should be analyzed cumulatively, in addition to incrementally. The increased attractiveness of private sources of funding and markets for certain companies may be linked to these requirements.
(2) Evolution of the SEC Alongside Changing Markets. The Commission must evolve with the market, including utilizing technology to find new ways of analyzing regulatory filings and detecting suspicious activity. However, such advances should be balanced against the costs companies incur to comply with new regulatory changes.
(3) Retrospective Review of Adopted Rules. The SEC should regularly review its rules retrospectively to determine where rules are, or are not, functioning as intended.
(4) Consideration of Costs of Compliance. The Commission must write rules in a clear manner, with a vision in mind for how those rules will be implemented, recognizing implementation costs that are likely to arise.
Principles in Practice
Chairman Clayton additionally explained how he expects to put these principles into practice, including:
(a) Enforcement and Examinations; Cyber Risks. In addition to emphasizing that the SEC “intend[s] to continue deploying significant resources to root out fraud and shady practices in the markets,” Chairman Clayton also noted that public companies have an obligation to disclose material information about cyber risks. He acknowledged that the SEC must be cautious about punishing companies that are victimized by cyber-attacks. Chairman Clayton went on to explain that the Commission must take a broad view and bring proportionality to its analysis of cybersecurity which affects investors, companies, markets, and national security.
(b) Capital Formation. Chairman Clayton expressed concern about the number of large companies opting to remain private, believing that the Commission needs to increase the allure of the public capital markets. He cited the implementation of the JOBS Act on‑ramp for emerging growth companies (“EGCs”) as a recent success story. Chairman Clayton acknowledged that the Commission recently expanded the approach of the JOBS Act by adopting a non-public review process for draft registration statements of companies that do not qualify as EGCs, as discussed in more detail here. He also encouraged companies to reach out to the SEC Staff with respect to waiver requests under Rule 3-13 of Regulation S-X from reporting rules that may “require publicly traded companies to make disclosures that are burdensome to generate, but may not be material to the total mix of information available to investors.”
While the principles outlined above do not necessarily signal a dramatic shift in policy for the SEC, they reinforce prior indications that the Commission under Chairman Clayton will increasingly focus on encouraging capital formation and may be willing to explore ways to curtail existing regulatory burdens that may serve to hamper capital formation.
Special thanks to Nick Dumont in New York and Victor Twu and Matt Haskell in Orange County for their summary of Jay Clayton's speech.